Biotech Manufacturers Face New Political Landscape

The slow pace of economic recovery and continued high unemployment were the top issues fueling the Republican landslide in last month's Congressional and state elections. In addition, fear and confusion over President Barack Obama's healthcare reform plan ignited a "throw-the-bums-out" attitude across the nation that eroded the Democratic majority on Capitol Hill.

With new leaders controlling the House of Representatives, and Democrats holding a narrower majority in the Senate, Republicans will be looking to deliver on promises to cut government spending and to repeal or revise Obamacare. That will not be an easy task, as many provisions of the Affordable Care Act (ACA) are highly popular, such as tax credits for small businesses, closing the Medicare drug benefit doughnut hole, and requiring insurers to cover patients with pre-existing conditions. There's strong support for approving biosimilars that will be more affordable for patients, a provision championed by consumers and biotech manufacturers alike.

To satisfy candidates who successfully ran against Obamacare, the new House leaders are gearing up for a vote to repeal health reform early next year. But this will largely be a symbolic gesture because it's unlikely to pass the Senate or override Obama's veto. Insurers and biopharmaceutical companies want to extend coverage to the 30 million uninsured, and the individual mandate is key to preventing consumers from waiting until they are sick to purchase health insurance. The worst-case scenario for biopharmaceutical manufacturers is that the promised expansion in healthcare coverage evaporates, leaving companies with added fees and rebates, and considerable uncertainty about reimbursement for new therapies that are costly to develop.

CUTS AND REVISIONS

Instead of wholesale repeal, the new Congress will be looking to challenge specific provisions in the ACA. Medical product makers and insurers would like to roll back the billions in added taxes designed to cover expanded coverage, but that will be costly to the government. One piece of low-hanging fruit is a cumbersome tax-reporting provision that requires businesses to file 1099 forms with the IRS for payments worth more than $600 during the year. Small business is livid over the policy, and even Obama says it should be modified.

A prime target for biopharmaceutical companies is to eliminate or modify the Independent Payment Advisory Board (IPAB), which has broad powers to set payment policy for Medicare and recommend changes in private-sector payment systems. Doctors and other providers are leery of IPAB's authority to implement rate cuts, and manufacturers fear the Board will propose lower acquisition costs of drugs—particularly high-cost therapies—without weighing how these treatments can help lower healthcare costs overall. Congress is supposed to start funding IPAB in 2012 so it can be up and running in 2014, but that may not happen.

A main Republican strategy is to starve the implementation of IPAB and other new programs they don't like. House Republicans plan to block appropriations needed by the Department of Health and Human Services (HHS), the Internal Revenue Service, and other agencies to establish new ACA initiatives. This strategy is part of the plan of Rep. John Boehner (R-OH) presumptive House speaker, to make hefty reductions in federal non-defense discretionary spending.

Cutting the federal budget will not be any easier for Republicans than for Democrats, particularly because Congress first has to deal with some high-cost issues. Medicare fees for physicians will drop by 30% on January 1, 2011, unless legislators extend that deadline for another year, a move calculated to cost about $275 billion. And Bush-era tax breaks, which Republicans champion, also expire Dec. 31 unless renewed or extended before then.

Big curbs on government spending could create problems for biotech companies. Reducing federal outlays to 2008 spending levels, as Boehner proposes, would be devastating to the National Institutes of Health (NIH), the US Food and Drug Administration (FDA), and various health and social programs. NIH would lose about $3 billion, almost 10% of its current budget, and new FDA initiatives would fall by the wayside.

At the same time, Republicans may be more responsive to industry concerns about what they deem excessive regulation and supportive of negotiations to renew prescription drug user fees, a top priority for the Biotechnology Industry Organization (BIO) in the coming year. Republicans are less likely to worry about user fees making FDA too dependent on industry, but to cut the budget, they may want to tap manufacturer fees to cover more FDA activities than has been the rule.